China’s thermal electricity production, virtually all of which is coal fuelled has grown by 769TWh between 2015 and 2018 or 18 per cent. That’s about four time Australia’s electricity consumption and probably over 500 million tonnes of extra CO2 per year.

At the same time coal production in China has been essentially flat at around 3.5 billion tonnes. China does not separately publish coal production for coking coal (used for steel) as opposed to thermal coal (used for electricity).

We are confident that the overall stats broadly reflect the steaming coal situation and are not overly biased by the smaller coking coal market.

So the increase in thermal electricity production has required increased coal imports and it’s this which has made the coal price high, and significantly contributed to the rise in electricity prices in Australia and more importantly – from a global perspective – kept electricity production costs in China high.

Although China has done something to increase nuclear, wind and PV production, the results at the moment are uninspiring. If you are an optimist you can say China is in the “hard yards” phase where the focus is just about getting some forward momentum for non thermal generation. The big gains will come later, probably for the world too late.

The next bit of bad news is that recently, the momentum of thermal electricity has strengthened, growth in the December quarter was 7% on the previous corresponding period. However, China appears to be giving up on control of coal production. China’s coal production growth was 5% in the December quarter.

Much of China’s aluminium industry has captive power where scandalous abuses of China’s already weak environmental controls are institutionalised.

However, if you are paying one of the big electricity companies the costs is close to A$70 MWh. China’s aluminium, and even petro chemicals can’t compete with Middle Eastern gas-fired or hydro-powered aluminium made elsewherea. And if nothing was done the situation would get worse.

So, of course, China is giving up on its environmental goals. For now these goals are being put in the “paper tiger” category. Lip service, but no execution.

No improvement until China gets over its property love affair

For over five years – like Cassandra singing from the walls of Troy – accurate, tuneful and unheard, we’ve been saying that the two most important economic variables in the world are US bond rates and China’s property construction.

There is an army of US bond rate analysts and watchers, but a much smaller and less well informed group that follow China property.

China’s housing starts, over 15 million dwellings per year, its commercial building and associated infrastructure are less well understood. If they were, the world would understand that’s where large quanties of the steel, cement, aluminium and other basic materials ends up.

China produces more than 50% of global production of many basic products these days and what is even less well understood is that much of it ends up in China’s property construction.

Here at ITK we knew 12 and even 24 months ago, and said so in articles written for Reneweconomy that China’s electricity consumption was almost certain to grow. Perhaps this is hindsight bias, but we did say it before.

And why did we think that?

It was because we could see that new floor space started for construction was growing. China doesn’t publish the monthly new floor space but, for reasons best known to Chinese statistician, as it does publish the annual accumulated number.

And you can work out the monthly level and growth rate by subtracting the accumulated total in say December 2018 from that of November 2018. As of December 2018 the three month accumulated growth rate is 19%.

All that floor space started has to be built into buildings, steel and concrete high rise towers, steel and concrete office blocks, shopping centres, factory sites, airports, trains stations, subdivisional roads and inter urban highways.

Even in China it takes time to build, so you can predict, in our opinion, the growth of electricity consumption, the growth of steel consumption, the growth of cement consumption, just by keeping an eye on that one statistic. Of course you have to assume floor space started is reported in an accurate and timely fashion.

Of that I know nothing and could be missing something important. So far though the data is consistent with the theory.

However, we contend that if China’s construction industry was to come to a dead stop electricity consumption would probably fall, steel production would fall and the growth rate of global CO2 emissions would decline.

David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.

David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.